Profit for the first half of 2023 was in line with our expectations
The company announced its results for the first half of 2023: operating income of 6.69 billion yuan, up 6.15% year on year; net profit of 1.35 billion yuan, up 11.5% year on year; net profit of 1.09 billion yuan after deducting non-net profit of 1.09 billion yuan, up 4.52% year on year. 1H23 profit is in line with our expectations.
Development trends
The chemicals sector resumed good growth in the second quarter alone. First half of 2023:1) The revenue of the digestive tract sector (24.29% of total revenue) was 1.63 billion yuan, down 7.75% year on year. In the second quarter, its revenue was 833 million yuan, up 20.5% year on year, and 5.1% month on year. 2) The sex hormone sector (accounting for 20.6% of total revenue) had revenue of 1.38 billion yuan, an increase of 2.71% over the previous year. In the second quarter, its revenue was 800 million yuan, up 32.7% year on year, and 38.6% month on year. 3) Revenue from the spiritual sector (4.16% of total revenue) was 280 million yuan, up 5.31% year on year. For the second quarter, its revenue was 156 million yuan, up 19.2% year on year, and 27.1% month on month.
Microspheres are expected to enter the harvest period, and biological product pipelines are gradually being enriched. As of August 23, 2023, the company announced that triptorelin microspheres (1-month retarded release) prostate cancer indications were approved for listing in the first half of the year. Injectable aripiprazole microspheres (1-month retarded release) have completed phase I clinical trials and are ready to be declared for production. BE tests are being carried out on octreotide microspheres (1-month extended release) and leuprorelin microspheres (3-month extended release). In terms of biological products, recombinant human tropin for injection is being actively promoted overseas registration related work. Both recombinant human follicle-stimulating hormone injections and recombinant anti-human IL-17A/F humanized monoclonal antibody injections have been carried out in phase III clinical trials. Furthermore, the phase III clinical trial of simeglutide injection was completed.
Others: 1) Sales of high-end antibiotic series products have been steadily increasing. In the first half of 2023, revenue from the APIs and intermediates sector increased 3.03% year on year to 1,782 billion yuan, and gross profit margin was 36.6%, a slight decrease of 1.1 percentage points from the previous year. 2) The traditional Chinese medicine sector is deeply involved in terminal markets such as grade hospitals, primary medical institutions, and retail pharmacies. In the first half of the year, revenue from the Chinese medicine sector increased 94.42% year on year to 954 million yuan.
Profit forecasting and valuation
Considering the possible impact of joint harvesting of some varieties at the provincial level, we lowered the 2023/2024 EPS forecast by 4.3%/5.8% to 2.27 yuan/2.57 yuan. The current A-share price corresponds to the price-earnings ratio of 14.7 times/13.0 times in 2023/2024, and the H-share price corresponds to 8.9 times/7.6 times the price-earnings ratio of 2023/2024. We maintain that A shares and H shares outperform the industry ratings. Considering the downturn in industry valuation centers, we lowered the target price of A shares by 5.0% to 42.3 yuan, corresponding to the price-earnings ratio of 18.7 times/16.5 times in 2023/2024, with an upward margin of 27.3% compared to the current stock price; we lowered the target price of H shares by 6.7% to 31.9 HKD, corresponding to 11.9 times/10.1 times the price-earnings ratio in 2023/2024. There is 33.5% upside from the current stock price.
risks
The product launch progress fell short of expectations, the progress of research pipelines fell short of expectations, and the pressure to collect and reduce prices exceeded expectations.